Second Low-Cost iPhone for Fall to Bring In High Profits for Apple

Despite targeting the more entry-level market with a rumored second new iPhone that will debut this fall alongside a flagship iPhone 5S with more powerful specs, Apple is speculated to still make a lot of money on this low-cost model. In true Apple fashion, Credit Suisse analysts say that Apple should have a healthy and lofty 38 percent gross profit margin with this new entry-level iPhone.

More recently, Apple had investors concerned over the company’s future performance. For a firm that had historically relied on high profit margins, rather than large sales, analysts and investors are worried that the company may not be able to score as strong of a performance and profit margins may have to drop in the future given that the tablet and smartphone market is becoming increasingly saturated with fierce competition from Android, and in particular with Samsung. However, if BGR‘s report of a Credit Suisse’s prediction hold true, then investors may not have a lot to fear.

So it looks like Apple may be able to earn a healthy near-40 percent margin on its low-cost iPhone, which is expected to retail on average for $329 unlocked, compared with the entry price of $649 for an unlocked flagship iPhone 5 model today.

It’s unclear how the low-cost model will affect Apple’s lineup. Currently, the iPhone-maker sells a slightly less expensive model than its current flagship–in this case the iPhone 4S–along with a cheap entry-level model from two years ago–in this case the iPhone 4. Given that the iPhone 4 retails for $450 today unlocked, the cheaper iPhone model will undercut the least expensive model today by $120.

Both new iPhone models are rumored to be delivered this Fall alongside iOS 7.

The low-cost model is believed to have the same form factor as the iPhone 5 along with a 3G radio and 8 GB of storage. Given the price and specs, it is believed that Apple will capture about 40 percent of the market in the $300-$400 price range.

A low-cost model will be important to Apple moving forward, especially in the U.S. market where carriers may stop subsidizing smartphones in exchange for a two-year contract. T-Mobile is taking leadership with this position and AT&T, Sprint, and Verizon all say that this may be a possibility for them if T-Mobile is successful.

Tech enthusiast in Silicon Valley enjoying the possibilities of ubiquitous connectivity, information sharing, and collaboration enabled by mobile broadband. You can contact Chuong on Twitter @chuongvision or search +chuongvision on Google+.

1 COMMENT

the question is still out for me. does it really matter if the phone is a bit cheaper or is it worth it to get the galaxy s4? based on my current experience, i’m was a iphone user but the samsung just changed my life completely. i supposed that this was personal preference so i submitted a debate on sidewithme and it got approved. seems like there is an overwhelming interest in the S4 but what do you think? help me decide!http://sidewithme.com/debate/404